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How Religiosity Shapes Investor Behavior: Sukuk Issuances During Ramadan

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  • Paul-Olivier KLEIN

    (LaRGE Research Center, Université de Strasbourg)

  • Rima TURK

    (International Monetary Fund)

  • Laurent WEILL

    (LaRGE Research Center, Université de Strasbourg)

Abstract

We use an original identification strategy to isolate a potential religious bias in traders’ behavior. We first analyze the stock market reaction to sukuk issuance and then isolate the religious component of the trades by comparing the stock market reaction to sukuk and bond issuance during the holy month of Ramadan. We use the event study methodology to measure abnormal returns for a sample of 2,140 issuances by 133 issuers in Malaysia over the period 2000-2013. We find that sukuk issuance during Ramadan is valued more positively than bond issuance by stock market investors. We observe that the type of securities previously issued by the firm influences the stock market reaction, in the sense that the positive reaction to sukuk issuance during Ramadan rewards firms which only issue sukuk. Our findings support the view that religiosity influences the behavior of investors, suggesting that religiosity should be taken into account in the analysis of financial markets.

Suggested Citation

  • Paul-Olivier KLEIN & Rima TURK & Laurent WEILL, 2017. "How Religiosity Shapes Investor Behavior: Sukuk Issuances During Ramadan," Working Papers of LaRGE Research Center 2017-01, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2017-01
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    Cited by:

    1. Ashraf, Dawood & Rizwan, Muhammad Suhail & Azmat, Saad, 2018. "The Role of Ownership and Governance Mechanism in Sukuk Financing by Malaysian Firms: An Application of A Double Selection Model," Working Papers 2018-2, The Islamic Research and Teaching Institute (IRTI).
    2. Ashraf, Dawood & Rizwan, Muhammad Suhail & Azmat, Saad, 2021. "Not one but three decisions in sukuk issuance: Understanding the role of ownership and governance," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    religion; Islamic Finance; Ramadan effect; behavioral finance.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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